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4 ways FCA-PSA merger could be a plus

DETROIT — In a merger deal announced overnight, Fiat Chrysler stands to gain electric vehicle technology while PSA Peugeot Citroen could benefit from a badly needed dealership network to reach its goal of selling vehicles in the U.S. The merger would create the world's fourth-largest automaker with a combined market value of around $50 billion. Neither company would comment. Experts say the two automakers will be able to share car, SUV and commercial vehicle designs, helping each other fill weaknesses and share costs that will make them a strong global player. "We view the combination of these two companies as reasonable given global competition, high capital intensity, and industry disruption from electrified powertrain as well as autonomous technologies," Morningstar analyst Richard Hilgert wrote in a note to investors. Here are four areas that could be crucial to the two automakers' success: Technology For years, Fiat Chrysler has lagged its rivals in electric vehicle technology, with its former CEO once trying to discourage people from buying its only fully electric car in the United States, the Fiat 500E, because he lost money on each sale. The company has made progress on gas-electric hybrids and may have plans for more fully electric vehicles, but PSA has valuable technology that FCA can use, said Navigant Research analyst Sam Abuelsamid. Peugeot was relatively late to the electric vehicle game but is now working fast to catch up, notably with fellow French rival Renault. CEO Carlos Tavares has made a point of stressing the company's need to adapt to changing technology at car shows and earnings calls. Last year he announced plans to offer 40 electric models across its lineup by 2025. "Electrification hasn't been a huge part of their play up until now," Abuelsamid said. "Between the two of them, I think they could generate some scale for whatever they're doing, sharing component costs, development costs across electrical platforms," he said. More electric vehicles also would help FCA meet pollution and fuel economy regulations in Europe. As far as autonomous vehicles, neither company is among the leaders, Abuelsamid said. But that's a technology that's years into the future, giving them time to share the huge expenses and catch up together. FCA also has alliances with other companies such as Google spinoff Waymo that could bring autonomous vehicle technology to the market when ready, Abuelsamid said.

The Fiat 124 Spider's future is uncertain

Earlier this month, Fiat brand CEO Olivier Francois explained to Autocar that Fiat would re-focus on “the right balance between the two dimensions: the Fiat 500 family and family transportation. There will be no big cars, no premium cars, no sporty cars because they have no legitimacy. We will be present in the C-segment [Ford Focus class] but not much more. All models will sit within 3.5m and 4.5m (11.5 to 14.8 feet). This is where Fiat will play. We need more EVs. And we need more 500 models that look legitimate enough to take higher pricing.” Francois didn't say the 124 Spider is doomed, but Autocar understands that a second generation of the Mazda MX-5/Miata-based roadster is "unlikely." The comments on the 124 Spider come in the wake of Fiat pulling the droptop from the UK market because the car wasn't making money. The CEO said the partnership that created the convertible made sense, yet that while the 124 is profitable overall, "such a car may not be key to the future of the brand. It is not what IÂ’d call a pure, absolute Fiat, but for now, it remains an interesting opportunity.” The 124 Spider costs a touch less than the MX-5/Miata in the U.S., the opposite of UK pricing; nevertheless, the Mazda handily outsells the Italian after three years on sale. If Mazda keeps the fourth generation Miata around for 10 years as it did with the third generation, though, there could be a few years left to enjoy the 124 Spider even in the face of declining sales. The future of the Fiat brand in Europe will be built on the 500 on the next Panda city cars, joined by "a range of larger vehicles suitable for families;" one-third of the city cars sold in Europe are Fiats. The brand's U.S. lineup, aside from Abarths, is four 500-based cars and the 124 Spider. The 500 range will go upscale in order to justify higher prices to pay for electrified 500 and Panda platforms. A new electric 500 is expected next year, Francois describing that car in March as, "A new 500, totally renewed. A new object. Totally electric. It's kind of an urban Tesla, with beautiful style.

Fiat Chrysler's profit boosted by Ram and Jeep in North America

MILAN/DETROIT — Fiat Chrysler took the market by surprise by sticking to its full-year profit guidance on Wednesday after a strong performance from its Ram pickup truck in North America helped it defy an industry slowdown. Chief Executive Mike Manley, in FCA's first earnings release since a failed attempt to merge with France's Renault, also left the door open to that or other deals. "We are open to opportunity," Manley said on a call with analysts. "I have no doubt why there still would be interest in it," he added, when pressed on what it would take to revive talks with Renault. Manley declined to comment further. FCA last month abandoned its $35 billion merger offer for Renault, blaming French politics for scuttling what would have been a landmark deal to create the world's third-biggest automaker. Manley said a merger was not a must-have and Fiat Chrysler's business plan was strong. The company said it remained confident its adjusted earnings before interest and tax (EBIT) would top last year's 6.7 billion euros ($7.5 billion). Given disappointing forecasts from other automakers this earnings season, FCA's confirmation of the outlook sent Milan-listed shares in the Italian-American automaker, whose other brands include Jeep, up over 4%. A broad-based auto sales downturn has rattled the sector, forcing FCA's competitors — including Renault, Daimler and Aston Martin — to cut their sales forecasts after second-quarter results, while U.S. carmaker Ford gave a weaker-than-expected 2019 profit outlook. Japan's Nissan, a long-term partner of Renault, said it would cut 12,500 jobs by 2023 after its earnings collapsed. In the second quarter FCA's adjusted EBIT totaled 1.52 billion euros, versus analysts' expectations of 1.43 billion euros, according to a Reuters poll. FCA's U.S. shipments were down 12% in the second quarter but the group said that the successful performance of its Ram brand resulted in an enhanced share of the large pickup truck market of 27.9%, up 7 percentage points from last year. Adjusted EBIT margin in North America rose to 8.9% from 6.5% in the first quarter, thanks to strong demand for the heavy-duty Ram and the new Jeep Gladiator pickup. Chief Financial Officer Richard Palmer also said FCA expected to report up to 10% margins in the region in both the third and fourth quarters.